Prudential pushes on after Axa and Allianz news, and ING upgrade

Prudential is in demand after positive news from rivals Axa and Allianz, and a price target upgrade from analysts at ING.

The insurer's shares have climbed 32.5p to 610.5p, making it the biggest riser in the FTSE 100 at the moment. It has received a lift from Axa's proposals to buy full control of its Asian businesses, which traders say reinforces the value of Pru's own operations in the area. At the same time, the whole sector is being buoyed by better than expected third quarter results from Germany's Allianz.

Meanwhile ING, while concerned about the outlook for insurers generally, likes the look of those who are investing in emerging markets. On that basis it has raised its price target for Prudential from 392p to 584p, although it only has a hold rating on the shares. It commented:

As developed-world economies grow slowly or shrink and investment returns hide, the insurance industry faces the sort of perfect storm not seen in a working generation, in our view.

The recent strong outperformance of insurers in our universe seems to us to be a relief rally that they have not suffered in the same way as the banks. This reaction is sensible, if superficial, in our view – and unlikely to be sustained.

The sector faces an array of challenges like never before. In addition to the deadly combination of low investment returns and stagnating premium growth, challenges such as Solvency II loom. Products have not been properly repriced to take account of the new world of very low interest rates, in our view. This is killing margins just as certainly as lack of premium growth and poor investment returns.

Emerging markets to the rescue. Some of the world's developing markets are doing exactly what it says on the tin and growing. A number of names in our universe are building businesses in these markets, and we recommend focusing buying on these stocks. Companies that are pursuing growth in emerging markets are the buy-rated Generali, Allianz, Fortis and Aviva. While the hold-rated Prudential has a significant operation in emerging Asian markets, we consider all the good news about this to be reflected in the current share price.